nep-mfd New Economics Papers
on Microfinance
Issue of 2016‒10‒02
six papers chosen by
Olivier Dagnelie
Université de Caen

  1. Taking Stock of the Evidence on Micro-Financial Interventions By Francisco J. Buera; Joseph P. Kaboski; Yongseok Shin
  2. Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya By Jack, William; Kremer, Michael; Laat, Joost de; Suri, Tavneet
  3. Rational Herding toward the Poor: Evidence from Location Decisions of Microfinance Institutions within Pakistan By Jérôme Monne; Céline Louche; Christophe Villa
  4. The impact of a rural microcredit scheme targeting women on household vulnerability and empowerment: evidence from South West Nigeria By Damilola Olajide; Divine Ikenwilo; Kehinde Omotosho; Ngozi Ibeji; Olufemi Obembe
  5. Does microfinance elevate poverty? Does family size matter in the provision of microcredit? Evidence from a randomised evaluation By Rahimi, Lutfi
  6. A Quantum Leap over High Hurdles to Financial Inclusion: The Mobile Banking Revolution in Kenya By Rosengard, Jay

  1. By: Francisco J. Buera; Joseph P. Kaboski; Yongseok Shin
    Abstract: We review the empirical evidence on microfinance and asset grants to the ultra poor or microentrepreneurs, and assess our ability to account for this evidence using quantitative theory. Properly executed, these interventions can help segments of the population increase their income and consumption, but neither the empirical micro nor quantitative macro literatures give much reason to believe that such interventions can lead to wide-scale, transformative impacts akin to escaping aggregate poverty traps.
    JEL: O1 O11 O12 O16
    Date: 2016–09
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:22674&r=mfd
  2. By: Jack, William; Kremer, Michael; Laat, Joost de; Suri, Tavneet
    Abstract: We examine the potential of asset-collateralized loans in low-income country credit markets. When a Kenyan dairy cooperative exogenously replaced high down payments and joint liability requirements with loans collateralized by the asset itself - a large water tank - loan take-up increased from 2.4% to 41.9%. In contrast, substituting joint liability requirements for deposit requirements had no impact on loan take up. There were no repossessions among farmers allowed to collateralize 75% of their loans, and a 0.7% repossession rate among those offered 96% asset collateralization. A Karlan-Zinman test based on waiving borrowing requirements ex post finds evidence of adverse selection with very low deposit requirements, but not of moral hazard. A simple model and rough calibration suggests that adverse selection and regulatory caps on interest rates may deter lenders from making welfare-improving loans with low deposit requirements. We estimate that 2/3 of marginal loans led to increased water storage investment. Real effects of loosening borrowing requirements include increased household water access, reductions in child time spent on water-related tasks, and greater school enrollment forr girls.
    Keywords: agriculture; asymmetric information; borrowing requirements; collateralization; credit; down-payment; Kenya
    JEL: O13 O16
    Date: 2016–09
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:11523&r=mfd
  3. By: Jérôme Monne (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - UN - Université de Nantes, Audencia Business School); Céline Louche (Audencia Business School); Christophe Villa (Audencia Business School)
    Abstract: Analyzing the geographical location of almost all the microfinance institutions (MFIs) within Pakistan, this paper gives further evidence that microfinance activities do not reach the poorest rural areas. Especially, we explore how this result is driven by the uncertainty faced by MFIs in their location decision i.e. they can hardly predict accurately whether or not they will perform financially. Furthermore, we find that MFIs are spatially clustered and identify three main reasons for this: common attraction factors i.e. the characteristics of one area place fits to the preferences of all MFIs so that they are all located in the same areas; payoff externalities to be collocated; and herd behaviour, i.e. MFIs follows one another. Most importantly, we find that a significant part of this herding process is rational, i.e. early locations of MFIs convey information used by later ones such that it reverses or neutralizes the negative impact of uncertainty resulting then in more locations in needier areas. Since it allows them to be located in poorer areas, MFIs improve the achievement of their social goal. This latter result is rather good news for those who reckon that a better access to financial services enhances economic growth and fosters poverty alleviation. Indeed, rational herding constitutes an endogenous moderator effect to the big issue that financial services penetration is too weak in the poorest rural areas.
    Keywords: panel Poisson regression,rational herding,poverty,microfinance institutions,location decisions,uncertainty
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:hal:journl:hal-01362202&r=mfd
  4. By: Damilola Olajide; Divine Ikenwilo; Kehinde Omotosho; Ngozi Ibeji; Olufemi Obembe
    Abstract: The rapid expansion of microcredit in recent years is informed by the belief that removal of constraints to credit access facing the poor, particularly women, through microcredit can improve their well-being and ultimately help them out of poverty. However, the evidence supporting these promises has been largely inconclusive. This study examined the impact of a rural microcredit scheme targeting women on vulnerability and empowerment of the beneficiaries and their household members. The study was conducted in collaboration with the Amoye Microfinance Bank, Ikere Ekiti, Nigeria. Data was collected from a follow-up survey of 2,938 applicants, comprising 1,555 women who were successful (treated group) and 1,383 women who were unsuccessful (control group), and 8,418 household members. Eligibility for the microcredit was based on a credit scoring system. A regression discontinuity design was adopted to exploit the information around the eligibility threshold to identify the program impact. Vulnerability and empowerment were measured from five domains. The results showed that beneficiaries of the microcredit were significantly less vulnerable than non-beneficiaries, but not all of the measurement domains were significant. Also, beneficiaries were significantly more empowered than non-beneficiaries, and all of the measurement domains were significant. Additionally, indicators of labour market participation were significantly higher for household members of beneficiaries than for household members of non-beneficiaries. The analysis extended to examining associations between the estimated impacts and some institutional factors such as pricing, repayment method, loan duration and use of loan. The results suggest that these factors are potentially relevant for the aspect of design of microcredit schemes. The findings further inform the policy debate on the promises of microfinance, specifically relating to the multidimensional nature of the impacts, effects on family members of beneficiaries, and the relevance of institutional factors for microcredit design.
    Keywords: Microcredit; Regression Discontinuity Design; Financial inclusion; Vulnerability; Female empowerment.
    JEL: C21 C31 D14 G21 I32 O16 O55 Z13
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:lvl:pmmacr:2016-01&r=mfd
  5. By: Rahimi, Lutfi
    Abstract: This paper looks at randomised assessment of microcredit intervention through Spandana in Hyderabad, India. It looks at households with six or more than six members as a restricting conditioning to see whether provision of microcredit affects them differently. This paper finds significant differences in the way which smaller and bigger families allocate their additional resource received in the form of microcredit intervention. As stated above, bigger households spend more on durable goods as soon as they received a loan whereas smaller households do not emphasis on increasing household stocks. These results are revealing on how different households prioritise their expenditure categories and thus may serve as a guide to microcredit institutions on how to provide tailored credit packages. Likewise, intuitively bigger households had higher borrowing levels compared to smaller households . Furthermore, this paper concludes that smaller households increase their borrowing from banks and informal sources as well. The reasons behind this contrast maybe due to unconsidered factors in this study such as existing family businesses, household preferences or loan provider criteria.
    Keywords: Keywords: microfinance, microcredit, poverty elevation, family size
    JEL: G2 G21
    Date: 2015–04
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:73906&r=mfd
  6. By: Rosengard, Jay (Harvard University)
    Abstract: A powerful tool to achieve equitable development is promotion of economic empowerment for marginalized citizens by increasing formal financial services access and utilization. The provision of these services via mobile phones has shown great promise in overcoming geographic, demographic, and institutional constraints to financial inclusion, especially in Africa and led by the mobile banking revolution in Kenya. This is exemplified by the extraordinary success since 2007 of Safaricom's M-PESA, a mobile phone-based money transfer, payment, and banking service: as of June 2015, Safaricom had more than 22 million M-PESA subscribers served by over 90,000 M-PESA agents. The confluence of several factors have contributed to M-PESA's success, including Kenya's political and economic context, demographics, telecommunications sector structure, lack of affordable consumer options, and enabling regulatory policies. Equally important have been Safaricom's internal astute management and marketing of M-PESA. But M-PESA is now facing a strong new rival in Airtel Money, offered by Equity Bank, Kenya's third largest bank. Now two different models for mobile financial services are competing vigorously in Kenya: Safaricom, an example of telecom-led mobile banking and Equity Bank, an example of bank-led mobile banking. There are three key challenges in Kenya to further promotion of financial inclusion via development of mobile financial services: facilitation of increased competition; transformation of non-digital microfinance institutions; and enactment of greater consumer protection. Where Kenya's success factors might be present, many of Kenya's lessons can be adapted. Where conditions are significantly different, the challenge becomes how best to nurture home-grown innovative solutions to address specific local constraints.
    Date: 2016–06
    URL: http://d.repec.org/n?u=RePEc:ecl:harjfk:16-032&r=mfd

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